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Canadian Natural Gas Exports to U.S. Up 8%

Canadian natural gas exports jumped by 8% during the first half of the current contract year, confirming that earlier forecasts of imminent decline were premature.

Pipeline deliveries to the United States were 1.94 Tcf during the six months from last Nov. 1 to April 30 this year, the National Energy Board has reported. In the same period of the 2003-04 gas contract year, Canadian exports were 1.8 Tcf.

The surge followed two years of record drilling, when gas was the target for about 75% of more than 20,000 well completions across the western provinces and about four-fifths of the activity concentrated in mainstay supplier Alberta. The hectic pace continues, with most of an expanded fleet of about 750 drilling rigs busy even in the traditional Canadian summer slow season.

The period marks two new developments that Canadian industry analysts are watching closely, awaiting data on activity that often remains at least partially confidential due to competition for land positions and technical advantages.

Coalbed methane, still in its infancy in Canada, is understood to account for a high proportion of the added activity, although the Alberta Energy and Utilities Board only recently required it to be reported separately from conventional shallow drilling. Also accelerating is a harvesting method known as "resource plays," where top producers such as Encana Corp. accumulate large land positions then do development drilling at an intensity previously rare in the traditionally exploration-minded Canadian industry.

The supply trends have prompted senior Canadian producers such as ARC Energy to caution investors that prices could hit a plateau or even take a turn down. But as Canadian gas continues to march in tandem with U.S. production and the inflamed oil markets, export prices show no signs of retreating.

Deliveries increased to all but one of the U.S. destinations reached by Canadian gas exports, and the exception was minor.

Shipments to the U.S. Middle West slipped by 1.4% during the first half of the current contract year, down to 819.6 Bcf from the same period of 2003-04. The Midwest remained the largest single destination for Canadian gas exports. Prices fetched at the international boundary on deliveries to the region were up by 27% at an average US$6.50 per MMBtu from $5.12 during the first half of the 2003-04 contract year.

On the second biggest American import market for Canadian gas, the U.S. Northeast, export deliveries in the first half of the current contract year were up by 19% to 630.8 Bcf from 530.5 Bcf in the same period a year earlier. Prices for Canadian exports to the northeastern states averaged US$6.78 per MMBtu, up 21% from the $5.58 a year earlier.

Canadian exports to California grew by 8.7% in the first six months of the current contract year to 244.6 Bcf from 225.1 Bcf in the same period a year earlier. California prices for Canadian gas averaged US$6.08 per MMBtu, up 23% from $4.94 during the first six months of the 2003-04 contract year.

Exports to the U.S. Pacific Northwest were 245.3 Bcf in the first half of the current contract year, up 15% from 213 Bcf in the same period a year earlier. Northwest prices for Canadian gas leaped 33% to average US$6.06 per MMBtu in the first six months of this contract year compared to $4.56 a year earlier.

Canadian exports to the U.S. Rocky Mountains region, while still small, have been growing rapidly. Deliveries into the region jumped 86% to four Bcf in the first six months of this contract year from 2.2 Bcf a year earlier. Regional prices were up 23% at an average US$6.04 per MMBtu from $4.90 a year earlier.

Overall, prices at the international border for Canadian gas exports to all U.S. destinations averaged US$6.48 per MMBtu in the first half of the current contract year, up 25% from $5.17 a year earlier.

Canadian gas export revenues jumped by a whopping 35% in the first half of the current contract year due to the combined effects of increases in both sales volumes and prices. The total hit US$12.7 billion for the period. In the same period a year earlier, Canadian gas exports were worth $9.4 billion.

Exporters scored substantial gains even after taking into account the steady rise in the value of Canadian dollar against its American counterpart. The Canadian currency has become known as a petrodollar among traders. About 60% of both gas and oil production in Canada is exported, and output of both commodities has attracted currency traders' attention by rising. In Canadian funds, gas exports in the first half of the current contract year fetched $15.5 billion, up 25% from $12.4 billion a year earlier.

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